Technological innovations are quickly changing the way people interact with money, which is pushing many start-ups to rethink financial and banking services. These companies, called FinTechs (Financial Technology), have been invading the financial sector over the last decade, offering innovative services linked to payments, lending, insurance and even investment management, shaking up the rigid and codified financial world.
By providing new ways to take advantage of greater investment options and tools, FinTechs offer investors a way to utilize new technologies for better control of their money, as well as easier, quicker and cheaper access to the financial markets.
Let’s find out what is Fintech and how it can help you diversify your portfolio.
What you Need to Know about FinTechs
The FinTech world truly appeared as we know it today after the climax of the financial crisis in 2008. Back then, tech savvy financial experts looked for ways to develop solutions that don’t rely on traditional financial providers, as many people lost confidence in the capacity they had to protect their money and provide fair services.
FinTechs today are companies whose work is dedicated to reinventing the finance sector through technology. These companies use innovative and disruptive business, technological or economic models to address existing or emerging issues in the financial services sector to make finance simpler and more accessible to everyone, through better and cheaper services.
According to the Financial Stability Board, FinTech plays an important role in five broad categories:
- payments, clearing and settlement,
- deposit, lending and capital raising,
- investment management, and
- market support.
There are also several categories of FinTechs like BtoC (business-to-consumer), BtoB (business-to-business) or BtoBtoC (business-to-business-to-consumer) FinTechs, as well as Insurtech, and Regtech.
The rapid development of the FinTech industry has been made possible by a combination of different factors, like:
- increased mistrust of financial institutions after the 2008 financial crisis ;
- growing public interest in digital financial services ;
- stronger and more complex financial regulation, which has led to an increase in intermediation costs (allowing new players to enter the market to offer better and cheaper solutions to solve people’s problems);
- developments in the data storage and management field.
FinTechs will likely continue to innovate and bring more disruptive technologies in 2020, as investment should “remain strong globally” according to the Top 10 FinTech predictions for 2020 from KPMG.
“The global FinTech ecosystem continued to mature over the course of 2019. With major developments on the horizon, such as the increasing focus on open data opportunities, more regulatory clarity in a number of jurisdictions, growing involvement of big techs in FinTech, and the ongoing evolution of technologies like AI, blockchain and cryptocurrency, 2020 promises to be another big year for FinTech,” declares the accounting firm.
How can FinTechs Help you Implement a more Diversified Investment Strategy?
As FinTechs aim to create a technological breakthrough that improves and simplifies services to consumers, while reducing prices to disrupt the financial services industry, using a FinTech for your investments could make you save time and money though simplified digitalised processes and lower fees. FinTechs can also allow you to profit from more financial vehicles options to diversify your portfolio and build balanced savings.
Among investment oriented products and services, FinTechs have developed copy-trading strategies, as well as robot-advisers. Thanks to artificial intelligence, bid data, and machine learning, they are able to build high frequency trading and algorithmic trading solutions.
Copy-trading can help you broaden your horizons with automated strategies. By automatically copying other successful traders, you will be able to diversify your investments with markets you wouldn’t have considered otherwise.
Robot-advisors can help you build a balanced financial portfolio with the appropriate financial products and the right markets, according to your trader profile. Algorithmic high speed trading tools can also provide a faster way for machine trading to predict price changes and take advantage of them.
If you have a winning trading system, diversifying your portfolio with Fintech will result in a steady upward performance curve without major drawdown. Not only will diversification allow you to buy and sell different assets at the same time, but it can also allow you to use new financial products and services that will give you a chance to simultaneously implement short, medium and long term strategies, which will, in turn, potentially reduce your overall risk and improve your trading performance.